Chrome Consultants

Credit Analysis of Financial Markets Infrastructures (FMIs)

Programme description & objectives

This program offers a structured approach to the credit analysis of Financial Markets Infrastructures (FMIs): specifically central counterparties (CCPs), clearing houses, settlement agents and exchanges. To be facilitated by some of our most experienced consultants, the key learning outcomes include, but not limited to. Improved knowledge and insights into: - Business models of central counterparties, clearing houses, settlement agents and exchanges and how these are changing in response to economic, structural, competitive and regulatory issues - Main business and financial risks faced by each business model and how to evaluate risk management and strategy - Key performance indicators for each business model and dissect financial statements to uncover key credit issues - Typical exposures to the different types of institution and how these can be structured in order to minimize credit and other risks

Venues, Dates & Cost

VenuesDublinLondonDubaiEdmonton (CAN)Lagos/Abuja
DatesTBDTBDTBDTBDTBD
Cost$4,000 per participant (USD)(=N=)

For Whom

  • Risk Managers
  • Treasurers
  • Capital markets and regulatory professionals
  • NB: The course is pitched at an intermediate level and assumes a basic knowledge of securities and derivatives markets, accounting and credit risk issues.

Markets in Securities and Derivatives

  • Markets, mechanics and participants
    • How risks arise in the trade cycle from execution to settlement: securities and derivatives, OTC and exchange-traded markets
    • The major infrastructure participants and how they mitigate risk: exchanges, central counterparties and settlement agents
    • Market characteristics: order-driven and quote driven markets, exchange traded and over the counter markets
    • The changes in the OTC derivative markets and their implications
    • New trade platforms: Swap Execution Facilities (SEFs) & Organized Trading Facilities (OTFs)
    • New roles for Central Counterparties
    • How central counterparties manage risk: membership criteria, margining approaches, default fund structures, waterfall in the event of a clearing member default
    • How central counterparties can create risk: instances of central counterparty failure and near failure: issues and warning signals
    • Resolution mechanisms for failed CCPs and their potential impacts
    • Settlement mechanisms and the risks: delivery versus payment (DVP) systems, free delivery risk and how to mitigate the risks

Operating Environment

  • Business models
    • Differing business models and impact on business risks
    • Central counterparties and clearing houses (e.g. LCH Clearnet, CME Inc., IceClear, Japan Securities Clearing Corporation)
    • Settlement agents (e.g. Euroclear, CLS, DTCC)
    • Exchanges (London Stock Exchange, Eurex, Chicago Mercantile, & Singapore Exchanges)
    • Impact of electronic trading, consolidation
  • Regulation
    • Regulatory initiatives to extend the use of central clearing:- Dodd-Frank in the USA, EMIR, MIFID and MIFIR in the European Union, major Asian markets
    • Timeline for introduction of central clearing
    • Contentious regulatory issues: Indirect Clearing, Frontloading risk, different approaches to segregation in the USA and EU
    • Basel III rules on risk weighting exposures to CCPs
    • Capital Adequacy requirements for CCPs in different jurisdictions
    • CPSS/ IOSCO principles for FMIs
    • Supervision: who supervises the different exchanges, central counterparties and exchanges

Risk and Financial Analysis

  • Business risk
    • Credit risk: evaluating the CCPs risk management process
    • Different margining methodologies used by different CCPs
    • Understanding the risk dynamics of different products & the appropriate margining methods
    • Default fund calculations & assessing their adequacy
    • Operational risk: impact of the business model
  • Financial risk
    • Managing liquidity and investment risk
    • Appropriate levels of leverage and capital
  • Other risks
    • Legal, regulatory, reputational, and systemic risk assessment

Exposure Structuring

  • Assessing and controlling exposures
    • Measuring counterparty risk: estimating the close out risk
    • Risks faced by third parties
    • Documentation requirements: FIA-ISDA initiatives
    • Exposure monitoring and managing exposure to a single CCP